Chapter 1

Introducing
Economic
Development:
A Global
Perspective

Copyright © 2012 Pearson Addison-Wesley. All rights reserved.

1.1 How the Other Half Live

When one is poor, she has no say in public, she feels inferior. She has
no food, so there is famine in her house; no clothing, and no progress
in her family.
—A poor woman from Uganda

For a poor person everything is terrible—illness, humiliation, shame.

We are cripples; we are afraid of everything; we depend on everyone.
No one needs us. We are like garbage that everyone wants to get rid
of.
—A blind woman from Tiraspol, Moldova

Life in the area is so precarious that the youth and every able person
have to migrate to the towns or join the army at the war front in order
to escape the hazards of hunger escalating over here.
—Participant in a discussion group in rural Ethiopia
1.1 How the Other Half Live

 When food was in abundance, relatives used to share it. These days of
hunger, however not even relatives would help you by giving you some
food. —Young man in Nichimishi, Zambia
 We have to line up for hours before it is our turn to draw water.
—Mbwadzulu Village (Mangochi), Malawi
 [Poverty is] . . . low salaries and lack of jobs. And it’s also not having
medicine, food, and clothes. --Discussion group, Brazil
 Don’t ask me what poverty is because you have met it outside my house.
Look at the house and count the number of holes. Look at the utensils and
the clothes I am wearing. Look at everything and write what you see. What
you see is poverty. —Poor man in Kenya

 A universal theme reflected in these seven quotes is that

poverty is more than lack of income – it is inherently
multidimensional, as is economic development.
1.2 Economics and Development Studies

 Adam Smith was the first “development

economist” and that his Wealth of
Nations, published in 1776, was the first
treatise on economic development.
 However, the systematic study of the
problems and processes of economic
development in Africa, Asia, and Latin
America has emerged only over the past
five decades or so.
1.2 Economics and Development Studies

 Traditional economics An approach to economics that

emphasizes utility, profit maximization, market efficiency,
and determination of equilibrium.
 Political economy The attempt to merge economic
analysis with practical politics— to view economic activity in
its political context.
 Development economics The study of how economies are
transformed from stagnation to growth and from lowincome
to high-income status, and overcome problems of absolute
poverty.
 Absolute poverty A situation of being unable to meet the
minimum levels of income, food, clothing, health care,
shelter, and other essentials.
1.2 Economics and Development Studies

 More developed countries (MDCs) The now economically

advanced capitalist countries of western Europe, North
America, Australia, New Zealand, and Japan.
 Less developed countries A synonym for developing
countries. Countries of Asia, Africa, the Middle East, Latin
America, eastern Europe, and the former Soviet Union that
are presently characterized by low levels of living and other
development deficits.
Why Study Development
Economics?
 To gain a better understanding of a number of critical
questions about the economies of developing nations. For
example:
Why Study Development
Economics?
Figure 1.1 World Income Distribution
1.2 Economics and Development Studies

 Economies as Social Systems: The Need to

Go Beyond Simple Economics
 Social Systems
 Interdependent relationships between economic and non-
economic factors
 Success or failure of development policy
 Importance of taking account of institutional and structural
variables along with more traditional economic variables
1.3 What Do We Mean by Development?

Because the term development may mean different things to

different people, it is important that we have some working
definition or core perspective on its meaning. Without such a
perspective and some agreed measurement criteria, we would
be unable to determine which country was actually developing
and which was not.

Traditional Economic Measures:

Development has traditionally meant achieving sustained rates of growth
of income per capita to enable a nation to expand its output at a rate faster
than the growth rate of its population.
Levels and rates of growth of “real” per capita gross national income (GNI)
(monetary growth of GNI per capita minus the rate of inflation) are then used to
measure the overall economic well-being of a population—how much of real
goods and services is available to the average citizen for consumption and
investment.
1.3 What Do We Mean by Development?

Traditional Economic Measures:

Income per capita Total gross national income of a country
divided by its total population.
Gross national income (GNI) The total domestic and foreign
output claimed by residents of a country. It comprises gross
domestic product (GDP) plus factor incomes accruing to
residents from abroad, less the income earned in the domestic
economy accruing to persons abroad.
Gross domestic product (GDP) The total final output of
goods and services produced by the country’s economy, within
the country’s territory, by residents and nonresidents,
regardless of its allocation between domestic and foreign
claims.
1.3 What Do We Mean by Development?

The New Economic View of

Development
The experience of the first decades of post–World War II and
postcolonial development in the 1950s, 1960s, and early 1970s, when
many developing nations did reach their economic growth
targets but the levels of living of the masses of people remained
for the most part unchanged, signaled that something was very
wrong with this narrow definition of development.
In short, during the 1970s, economic development came to be
redefined in terms of the reduction or elimination of poverty,
inequality, and unemployment within the context of a growing
economy and “redistribution from growth” became a common
slogan.
1.3 What Do We Mean by Development?

Amartya Sen’s “Capability” Approach

According to Sen: “capability to function” is what really matters for status as
a poor or nonpoor person… “the expansion of commodity productions are
valued, ultimately, not for their own sake, but as means to human welfare
and freedom.

Poverty cannot be properly measured by income or even by utility as

conventionally understood; what matters fundamentally is not the things a
person has—or the feelings these provide—but what a person is, or can be,
and does, or can do. What matters for well-being is not just the
characteristics of commodities consumed, as in the utility approach, but what
use the consumer can and does make of commodities.

For example:
 a book is of little value to an illiterate person (except perhaps as cooking fuel or
as a status symbol).
 a person with a parasitic disease will be less able to extract nourishment from a
given quantity of food than someone without parasites.
 1.3 What Do We Mean by Development?
Amartya Sen’s “Capability” Approach continued
Think beyond the availability of commodities, which should not be an end itself but
rather a means to an end.
Functionings i.e. What people do or can do with the commodities of given
characteristics that they come to possess or control.
Functionings that people may value can range from:
 being healthy, well-nourished, and well-clothed to
 being mobile,
 having self-esteem, and
 “taking part in the life of the community.
Sen considers the functioning of a person is an achievement and thus different both
from (1) having goods (and the corresponding characteristics), and (2) having utility (in
the form of happiness resulting from that functioning).
Capabilities The freedoms that people have, given their personal features and their
command over commodities.
Some Key “Capabilities”

 Some Important “Beings” and “Doings” in Capability to

Function:
 Being able to live long
 Being well-nourished
 Being healthy
 Being literate
 Being well-clothed
 Being mobile
 Being able to take part in the life of the community
 Being happy – as a state of being - may be valued as a
functioning
 1.3 What Do We Mean by Development?
Amartya Sen’s “Capability” Approach continued
Five sources of disparity between real income and actual advantages:
1.Personal heterogeneities: such as those connected with disability, illness, age, or
gender;
2.Environmental diversities, such as heating and clothing requirements in the cold or
infectious diseases in the tropics, or the impact of pollution;
3.Variations in social climate, such as the prevalence of crime and violence, and “social
capital”;
4.Distribution within the family—economic statistics measure incomes received in a
family because it is the basic unit of shared consumption, but family resources may be
distributed unevenly, as when girls get less medical attention or education than boys do;
5.Differences in relational perspectives, meaning that some goods are essential
because of local customs and conventions. For example, necessaries for being able, in
Adam Smith’s phrase, “to appear in public without shame,” include higher quality clothing
(such as leather shoes) in high-income countries than in low-income countries.
1.3 What Do We Mean by Development?

Amartya Sen’s “Capability” Approach continued

In addition, functioning also depends on:

1.social conventions in force in the society in which the
person lives,
2.the position of the person in the family and in the society,
3.the presence or absence of festivities such as marriages,
seasonal festivals and other occasions such as funerals,
4.the physical distance from the homes of friends and
relatives
1.3 What Do We Mean by Development?

Amartya Sen’s “Capability” Approach continued

Why is Sen’s approach to development important?

Sen’s perspective helps explain why development economists have
placed so much emphasis on health and education, and more
recently on social inclusion and empowerment, and have referred
to countries with high levels of income but poor health and education
standards as cases of “growth without development.”
Real income is essential, but to convert the characteristics of
commodities into functionings, health and education is required.
The role of health and education ranges from something so basic as
the nutritional advantages and greater personal energy that are
possible when one lives free of parasites to the expanded ability to
appreciate the richness of human life that comes with a broad and
deep education.
Figure 1.2 Income and Happiness:
Comparing Countries
Income and Happiness
 The average level of happiness or satisfaction
increases with a country’s average income. For
example, roughly four time the percentage of
people report that they are not happy or satisfied
in Tanzania, Bangladesh, India, and Azerbaijan
as in the United States and Sweden.
 The relationship is seen only up to an average
income of roughly $10,000 to $20,000 per capita.
1.3 What Do We Mean by Development? (cont’d)

 Three Core Values of Development

 Sustenance: The Ability to Meet Basic Needs: The
basic goods and services, such as food, clothing, and
shelter, that are necessary to sustain an average human
being at the bare minimum level of living.
 Self-Esteem: To Be a Person:—The feeling of
worthiness that a society enjoys when its social, political,
and economic systems and institutions promote human
values such as respect, dignity, integrity, and self-
determination.
 Freedom from Servitude: To Be Able to Choose – A
situation in which a society has at its disposal a variety
of alternatives from which to satisfy its wants and
individuals enjoy real choices according to their
preferences.
1.3 What Do We Mean by Development? (cont’d)

 The Central Role of Women

Development scholars generally view women
as playing the central role in the development
of countries.
It is believed that to make the biggest impact
on development, societies must empower
and invest in women
1.3 What Do We Mean by Development? (cont’d)

The Three Objectives of Development

To conclude, development is both a physical reality and a state of
mind in which society has, through some combination of social,
economic, and institutional processes, secured the means for
obtaining a better life:
1.To increase the availability and widen the distribution of basic life-
sustaining goods such as food, shelter, health, and protection
2.To raise levels of living, including, in addition to higher incomes, the
provision of more jobs, better education, and greater attention to
cultural and human values, all of which will serve not only to enhance
material wellbeing but also to generate greater individual and national
self-esteem
3.To expand the range of economic and social choices available to
individuals and nations by freeing them from servitude and
dependence, not only in relation to other people and nation-states, but
also to the forces of ignorance and human misery
1.4 The Millennium Development Goals

 Millennium Development goals (MDGs)

Eight goals adopted by the United Nations in
2000
 Eradicateextreme poverty and hunger
 Achieve universal primary education
 Promote gender equality and empower women
 Reduce child mortality
 Improve maternal health
 Combat HIV/AIDS, malaria, and other diseases
 Ensure environmental sustainability
 Develop a global partnership for development
Table 1.1 Millennium Development Goals
and Targets for 2015
Table 1.1 Millennium Development Goals and
Targets for 2015 (cont’d)
Case Study 1: Progress in the struggle for more
meaningful development: Brazil

 What critical issues are raised from the

examination of development problems and
prospects facing Brazil?
 Why is a strictly economic definition of
development inadequate? What do you
understand economic development to mean? Can
you give hypothetical or real examples of
situations in which a country may be developing
economically but may still be underdeveloped?